How leasing vs. financing a car affects your insurance

January 30, 2018

There are plenty of pros and cons to consider when it comes to deciding between leasing or financing your vehicle. Regardless of which option you choose, here are four key ways it will (or won’t) impact your insurance.

Pricing

The good news is that it doesn’t matter whether you lease, finance or own your vehicle because it has no impact on the cost of your car insurance. Instead, your rate is determined by a number of factors, such as the vehicle make and model, how long you’ve been a licensed driver, number of past claims and traffic tickets.

Additional interests

When you lease or finance your vehicle, a third party – often the lienholder, lessor or financing company – has a stake in your vehicle. This means they need to be listed as Additional Interests on your policy.

Your insurer is required to advise them if you lower your limits or increase your deductibles. They’re also required to advise them if your insurance has been cancelled.

Coverage

Your lessor or financing company may have specific coverage requirements for your vehicle as a condition of your agreement with them. But, whether you lease or finance, you should have the following coverages.

Accident benefits coverage

Accident benefits coverage– If you’re injured in an accident (no matter who’s at fault) Accident Benefits is there to help you recover. This coverage is mandatory in all provinces and territories except Newfoundland and Labrador.In Quebec, British Columbia, Manitoba and Saskatchewan, it’s included as part of your government auto insurance plan.

Liability coverage

Liability coverage- This protects you and other drivers financially in case of an accident where you’re at fault. Any damages, injuries or losses experience by another driver or individual will be covered. (In Quebec, injuries can be covered by the SAAQ). The minimum required liability coverage in Canada varies by province.

Physical damage coverage

Physical damage coverage- This is the part of your policy that covers physical damage to your vehicle. Depending on your policy and province, this could cover you for at-fault or not at-fault accidents as well as damage from falling objects, vandalism, fire, theft or other perils. Since this coverage is not provincially mandatory but has the most significant impact on protecting the interest of your lessor or financing company, it’s often required by your agreement.

There are a couple optional coverages that are recommended, especially if you lease or finance:

Depreciation waiver

Family protection

Depreciation waiver - This means your insurer will replace your vehicle without any decrease in value due to age or wear and tear. If your car is repairable, then you’ll get OEM (original equipment manufacturer) parts. Vehicles within 2 model years old that were bought new or within 1 model year old that were bought used or as a demo can qualify for this added coverage.

Family protection – If you’re hit by an uninsured driver while in another province or state, you’ll be covered by your own policy limits no matter what the minimum is (sorry Quebec, this one isn’t available for you.)

Claims

In the event of a claim, leasing or financing your vehicle can change how the claim is handled. If you lease your vehicle, the lessor is considered the owner, meaning that your insurer would discuss the settlement with them instead of you.

Whether you lease or finance, if you’re in an accident where your vehicle is a total loss, your settlement will be co-payable. If it’s leased, settlement will be sent to the lessor. If it’s a lien, it will go to you, unless the agreement with your lienholder specifies differently. If the car is worth more than you owe, then you’ll receive the remainder of the settlement. On the other hand, should you owe more than it’s worth, you’ll have to cover the rest of the costs owed.

We’ve given you some key things to consider, but it’s also important that you review your agreement with your lienholder, lessor or financing company. Double check that you’ve met all of the specific insurance requirements to make sure you’re fully covered.

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